Why We Should Stop Corporate Cronyism

Last week I described the agreement between the OccupyDenver movement and the conservative counter-demonstrators that corporate cronyism was terrible for the country. But what exactly is corporate cronyism? Why is it bad for the country?

In my piece I described Governor Hickenlooper’s grant to Arrow Electronics of $11.4 million as corporate cronyism. First, let me make clear as a Coloradan how pleased I am that Arrow has consistently grown its presence in Colorado and has now relocated its corporate headquarters here. Further, nothing I write now or last week is intended to criticize Arrow or to express anything other than gratefulness for the jobs and the type of jobs Arrow has brought here.

If government funds are available and otherwise fit a compelling corporate goal, then of course Arrow is bound by its corporate fiduciary duty to obtain those funds to maximize shareholder value. But the question for government is, what does a policy of handing out taxpayer funds to a corporation accomplish in a time of mammoth budget cutting to education and other constitutional government duties?

Funds that could be used to put approximately 130 students through the science, engineering, and math degree programs at Colorado’s flagship public university in Boulder. The type of qualified graduates that entrepreneurs are telling us we need to remain competitive and create lasting new jobs in America (see my October 9th post). It is ironic that Arrow’s CEO is actually quoted in the press coverage of the move as saying, “I have one comment when it comes to education and that is, produce more engineers. Produce more people that are technically capable and the state’s problems will take care of themselves.”

Based on the Denver Post’sreporting, Arrow has grown its presence in Colorado for over a decade. Its CEO has lived in Colorado since 2000 along with many of its other executives. Arrow’s CEO was able to hire a local radio executive with access to the Governor, which eventually resulted in the Governor hosting Arrow’s CEO at a dinner at the Governor’s home in Park Hill. There is of course no way to truly know if Arrow’s move of its corporate headquarters to Colorado along with 1,250 jobs would have occurred naturally without government funding. Arrow’s CEO, however, is also quoted as saying, “Colorado doesn’t have a lot of incentives compared to other places”.

But in contrast to creating a 130 desperately needed engineers or physicists or physical scientists, the Arrow move does not appear to create any new jobs. Our Civil War in the 1860’s had many social consequences, but one of its primary results was settling that we are all Americans first and citizens of our respective states second.

I accept Arrow’s CEO’s statements that he is not going to shut down the Long Island office. But I also suspect based on my two decades of experience as a senior executive in large multi-nationals that the CEO and his senior staff’s presence at the Colorado headquarters will steadily erode jobs through attrition in New York. In other words the Governor’s use of taxpayer money for Colorado will hurt employment in New York. Merely shifting work around the country may be in the short term interest of Colorado. But it is not in the best interests of America and it does not create “new” jobs for the national economy.

Worse, those funds distort the level playing field of market forces upon which capitalism depends for democratic legitimacy. If Arrow had decided on its own to move to Colorado for the business environment, for the high quality employee base, and other reasons, then the loss of jobs in New York would be the result of market forces. This is the creative destruction aspect of capitalism. But when the government decides that Arrow is a winner and intervenes in the market it creates an uneven playing field.

Why not offer tax credits to an existing Colorado business or a competitor of Arrow? Who is the Governor to decide that Arrow is a better business than any other business? Why should the government lower Arrow’s labor costs but not the costs of another Colorado business? And whether the facts really support it, the answer we are told to believe is that without the subsidy Arrow would not have moved and 1,250 jobs would not come to Colorado.

But that is precisely the point. Just as with lobbying in Congress that generates a tax break for one industry or one business over another, these Colorado tax breaks reward those segments of our society with the money and power to gain access to the government. And that is a central undermining not only of capitalism, but of our democracy.

It is one of the reasons why the Tea Party rose after 2008 and why OccupyDenver is camped out across from the Capital in Denver. And while the Governor entertained the Arrow CEO , he has still refused to even meet with OccupyDenver. A scandal that continues to reinforce the view that the Governor is nothing more than a government apparatchik more suitable to Prime Minister’s Putin’s government in Russia than constitutional democracy in America. As someone who voted for the Governor, that is a view I am waiting for him to disprove through action not platitudes.

A path of lobbying and subsidies will only accelerate the disillusionment with our government and free market capitalism. This is supposed to be a government and an economy by and for the people, not just the people government officials are most comfortable inviting over to their house for dinner.

Last week I described the agreement between the OccupyDenver movement and the conservative counter-demonstrators that corporate cronyism was terrible for the country. But what exactly is corporate cronyism? Why is it bad for the country?
In my piece I described Governor Hickenlooper's grant to